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Stock market volatility continues as America enters recession


Michael Pinson, News Editor
12 Jun 2020, 3:49 p.m.

Fears of a second wave of Covid-19 have caused four days of successive falls in UK stock markets, followed by a slight rebound today. Oil prices have also tumbled again as the demand slump continues due to the ongoing lockdowns and restrictions.

For the three major Wall Street stock indexes Wednesday and Thursday saw the worst performance since mid-March. This was when leading economies first went into lockdown to prevent the virus spread and caused stock markets around the world to crash.

Despite this, Eli Lee, head of investment strategy at the Bank of Singapore, told Reuters 'It seems unlikely in our view that the equity market could revisit the levels of the March bottom, which were reflecting far greater levels of uncertainties.'

Other commentators believe that the earlier stock market rallies may have been fuelled by premature hopes in seeing an end to this financial crisis.

Gold bullion, having dropped slightly on the back of the rallying markets, has gained £60 per ounce this week (+3.4%) as institutions like the World Bank warn of the severity of the recession expected for the global economy.
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Gold Price Chart 12-06-20

The price of gold in GBP this week.

The National Bureau of Economic Research in America officially designated the country in recession on Tuesday (9th), something which seemed unthinkable for the powerhouse economy just one year ago. This marked the end of 10 years of economic expansion for the US and was followed by further warnings from Chairman of the Federal Reserve, Jerome Powell, on Wednesday (10th) sparking the sell off.

Powell stated that he expects the US economy to shrink 6.5% in 2020, with unemployment reaching 9.3% this year. Unemployment has been one of the stark examples of the economic impact of the pandemic in the US; over 44 million people, a quarter of the nation's workforce, have so far applied for jobless benefits since the pandemic hit the US.

He also added that the Fed expects interest rates to remain low until at least 2022, in what is likely a best case scenario of how long the US economy could be impacted negatively by the pandemic.

Having hit 2 million confirmed cases, America continues to hold its grim lead as the worst hit country, and more than doubling the second highest country – Brazil’s – total. With growing pressure from Donald Trump to get America back to work however, this figures are expected to only grow, hindering any economic recovery the US could hope for.

In a rose garden statement the President said, 'The best strategy to ensure the health of our people moving forward is to focus our resources on protecting high-risk populations, like the elderly and those in nursing homes, while allowing younger and healthy Americans to get back to work immediately.'

The World Health Organisation (WHO) however, warns that where lockdowns and social distancing is being eased governments should be prepared for second outbreaks to occur. The fear is that these moves to halt economic decline may be counterproductive in the long-term.

European Centre for Disease Prevention and Control (ECDC), figures show coronavirus deaths are still increasing in India, Russia, Mexico and Pakistan. Their figures also show the epicentre has moved to South America. Peru, Mexico, Chile and Ecuador are experiencing widespread outbreaks, while Brazil appears the worst hit, and in a short period has become second only to America.

Governments everywhere therefore face tremendously difficult choices, not to mention financial stress, balancing public health against wealth. As this week’s stock market performance shows, uncertainty remains high even six months after coronavirus was first reported. Despite hopes for a quick recovery, Jerome Powell’s statement has reminded even the most optimistic stock markets bulls that the impact of Covid-19 will be felt for years, not months, and there could be further volatility to come for stock investments that will see more people turn to gold to protect their wealth in the coming years.

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